Displacement vs. Enhancement of Suppliers

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Displacement vs. Enhancement of Suppliers

On Wednesday 22 May 2019, we participated in the 2nd Annual ABSA Business Day Supplier Development Awards – an industry award ceremony acknowledging the leading corporate entities who are implementing Supplier Development “Beyond the Scorecard”.

A key topic I’d like to share is one that is often viewed with some hesitation and which was fleetingly raised on the panel discussion between some of the industries brightest minds.

The displacement of existing untransformed suppliers vs. their growth through transformation and the identification of problems which can be solved by transformed SMEs.

The reality is that the South African economy hasn’t been growing, meaning the procurement spend from private and public sector hasn’t grown much either.

Now add the very necessary changes to the B-BBEE codes which impose an inclusionary rebalancing of economic opportunities and procurement spend to previously disadvantaged individuals and we have a scenario where displacement is enforced and we are not able to grow the country together.

So, what do we think needs to happen:

1. Change in mindsets – there are 3 major stakeholders in this discussion:-

a. Corporate entity: Identifying problems or gaps within the corporate’s value chain and/or operations creates the opportunity to identify new areas for strategic procurement – adding to procurement spend without necessarily displacing current suppliers. These new opportunities should be positioned for transformed entities or special purpose vehicles, and can include requirements in innovation within the business model of an entity.

b. Existing untransformed supplier: Approaching transformation and shareholding dilution should be done with a view to grow the business through recruitment of value adding shareholders and “new blood”. For many existing untransformed companies with ageing shareholders (often without any succession plan) this is an opportunity to realise an exit for those shareholders over a period of time.

c. Historically disadvantaged entrepreneur/professional: Identifying problems which need to be solved within corporate value chains on a micro level is key in the positioning of unique skills and offerings to both corporate and existing untransformed suppliers i.e. how will the inherent skills of the team add value to the business of an existing supplier?

2. Process – this requires a sale, merger or acquisition process to unfold. This is by no means a quick fix and all the stakeholders above need to find the right way to communicate value to each other – a topic for a separate blog but the principles are:

a. Determine the fair value for the business or opportunity
b. Determine if the value is acceptable to financiers to finance or whether financiers will finance the growth
c. Structure the share transaction to optimise B-BBEE, tax and access to markets and finance
d. Build an inclusionary shareholding and executive team together

This is by no means full proof. It’s the tough road that requires South Africans to look past the emotions of B-BBEE and truly work together – it’s going to take effort and diligence, patience and resilience, resulting in a growing economy. It requires us all to start looking at B-BBEE and supplier development as an opportunity for growth and not through a lens of fear and lack.

With the new political environment and over 400% growth in Foreign Direct Investment (FDI), the country is ready to grow – it is up to us as private sector to identify problems, develop solutions and implement them for inclusive growth.

By |2019-05-31T09:57:07+02:00May 31st, 2019|Opinion Pieces, Supplier Development, Transformation|0 Comments

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